Published on January 13, 2022
Written by The Servion Group
Despite affordability challenges and rising interest rates, Realtor.com Chief Economist Danielle Hale says 2022 will be a “whirlwind for the housing market.” Hale told Forbes that home sales are expected to increase another 6.6 percent while home prices will rise another 2.9 percent on top of 2021 highs. The National Association of Realtors thinks prices will climb even more: 5.7 percent higher than 2021.
Those continuing home price increases are expected to lead to even higher purchase mortgage originations in 2022. Freddie Mac says purchase originations should rise from $1.9 trillion in 2021 to $2.1 trillion in 2022.
With higher interest rates forecast for 2022, Freddie Mac anticipates a major drop in refinance activity. The GSE expects refinance volume to drop from $2.6 trillion in 2021 all the way to $995 billion in 2022. That would be a roughly 62 percent decline in volume.
Freddie Mac forecasts that total originations (purchases plus refinances) will decline from $4.5 trillion in 2021 to $3.1 trillion in 2022. That $3.1 trillion is still a massive amount of business, but a sizeable slowdown from the breakneck pace of 2021.
As of mid-January, economists are expecting the Federal Reserve could raise interest rates four times during 2022 as the central bank turns its attention to controlling inflation. The Fed Funds rate is NOT the same as mortgage rates, but the Fed’s plan to raise that rate plus slow down the bond-buying program are a recipe for higher mortgage rates.
Economists at both Freddie Mac and the National Association of Realtors expect the 30-year fixed mortgage rate to rise to 3.5 percent by the end of 2022. Realtor.com predicts an average rate of 3.3 percent for the year, hitting 3.6 percent by the time 2022 is over.
There are 45 million millennials aged 26-35 – prime first-time buyer age. Hale says demand from these young households will keep the market competitive and high-priced, even though housing inventory is expected to finally start to increase. The small increase in available homes won’t be enough to offset millennial demand.
“2022 will be the biggest year for home equity accounts opened in the history of the mortgage market,” says Jeff Taylor, managing partner at risk compliance firm Digital Risk.
“If a client already has 2.5% on their mortgage, and they need to borrow $100,000, do you refinance the whole thing at 3.5%? Or do you just go get a home equity loan or HELOC and leave your 2.5% alone over?” he said in an interview with National Mortgage News.
At Servion, we don’t offer home equity loans, but we wrote about this topic in December as part of our commitment to helping partners identify all kinds of opportunities.
Mortgage rates and home prices will rise, albeit slowly. More homeowners are expected to list their homes for sale in 2022, which could alleviate some of the supply shortage, but demand from millions of millennials will still far outpace supply, leading to those home price increases. Buyers will therefore still need to act quickly when they see a home they want.
For lenders, expect far less refinance requests. Purchase volume, however, is expected to slightly grow. No matter what the market holds for 2022, you can rely on Servion Mortgage to be here to meet your needs and exceed your expectations.